Coalition Governments and Economic Growth in India

Former RBI governor Y V Reddy said that Coalition governments in India have produced better economic growth rates in the last three decades than a strong majority government… Interestingly, the highest growth in India from 1990 to 2014 was really during coalition governments… So, in a way it’s consensus based… in Indian situation, a coalition probably produces better economic results than a strong government.

Mr. Reddy is committing a logical fallacy of Cum Hoc, Ergo Propter Hoc. Just because two things are occurring simultaneously and are closely connected with each other doesn’t mean one is causing the other. Better economic growth has nothing directly to do with what kind of governments, either coalition or majority, India has. What matters for growth is what kind of economic policies these governments are going to follow. If the government is small and less meddling in the free market enterprise system then it will produce stronger economic growth like what happened after 1990 economic crisis and following Rao-Manmohan liberalization reforms. And if the government is totalitarian and imposes its controls on the free market enterprise system then it will strangle the growth like what is happening under present Modi government.

The only reason Mr. Reddy sees this correlation is because India is a typical Wittfogel style oriental despotic country where demagogue despots are lurking in the background to seize the power and impose their will on people whenever opportunity allows them. The coalition government restrains such demagogues so they have to listen to others’ wishes and stay away from totalitarian controls. Coalition government works under restrains because it is working constantly under threat of losing power if they ignore others’ wishes. Such government also results into more political log-jam in parliament so they can’t pass draconian controlling bills easily. But majority government doesn’t face such restraints. Whenever one party is successful in getting full power via full majority, like what Narendra Modi got in 2014, they impose their totalitarian controls on everyone resulting into dismal economic performance.